Dakota Beacon

Tuesday, September 11, 2018

Public schools and universities are known for many things, but teaching sound economics is not one of them. Whether this situation is by design or default it is both debatable and a debacle. Little wonder that public discussion of economics, if it takes place at all, is trite and inane. The education system has not prepared young people to form judgments and cast votes on programs of economic consequence.

To be sure, economics and finance are two totally different subjects. Finance focuses on the management of money and assets and emphasizes the maximization of wealth. Economics is the study of the use of scarce resources which have alternative uses and focuses on optimizing valued goals. Either way, everything of value has a cost. Nothing is free. Ever.

Over the decades, Louis Harris polls, Pew Research polls, and Gallup polls confirm most young people and many adults surveyed flunk economic literacy assessments. Capitalism scores low while socialism scores high.

Capitalism is a bias-laden term. In conversation it is wiser to use the neutral term economic individualism. Individuals, alone or together, must be free to decide where to invest, how much to invest and in what to invest. They must be allowed to produce and sell at whatever price they desire to whomever they please. Further, there must be no limit as to quantity of assets, number of sales, profits, employees, markets, investors, and customers. Likewise, there must be no limit to whether they operate locally, nationally or internationally. Finally, it is the duty of government to protect the freedom to function, not to squelch it and deny it with burdensome rules, regulations, and restrictions.

Economic individualism finds its roots in self-interest and ownership of private property. Both are morally and legally grounded. To understand economic individualism is to understand capitalism.

Capitalism could also be re-phrased as consumerism. Free markets are a two-way street and, in the end, consumers play the tune to which capitalist prices must dance.

Capitalist and socialist economic systems both redistribute resources. The fundamental distinction is how efficiently they do so. Whereas socialist redistribution is highly inefficient as witnessed by the collapse of most socialist economies in the last half century, capitalism clearly survived the socialist challenge. It also survived severe criticism and continues to flourish unabated raising the standards of living around the world. In the macro-sense, the link between self-interest and the efficient distribution of goods and services is competitive prices.

Capitalism has its basis in free markets, property rights, and non-coerced labor. Motivated workers, unrestrained markets, and reinvestment of profits account for the phenomenal success of capitalism. Putting wealth at risk through the reinvestment of profits distinguishes capitalism from the idea of merely extracting wealth from producers through taxes and other forms of expropriation.

So, three cheers for capitalism!

Despite the high standard of living generated by capitalism that Americans enjoy, and that other countries aspire to, capitalism confronts an eternal barrage of criticism.

In the mid-1800s radical social theorists repudiated individualism and inalienable rights arguing instead for regulated utopian colonies, brotherhood, social solidarity, and institutionalized collectivism.

By the 20th century no new criticisms of capitalism emerged, only the old criticisms dressed in new garb held sway. Some attacked self-interest and private ownership as leading to impoverishment of the private sector. They falsely declare government is the source of wealth and should have first claim on earnings. Others wrongly maintain that giant corporations are deficient and abusive. They advocate government intervention to combat the “big is bad” syndrome. Recently, globalization endorsed outsourcing of manufacturing and assembly to cut costs. Globalization is then denounced as exploitive and condemned for loss of U.S. jobs and tax revenue.

Cost-cutting through rivalry and product improvement occur constantly in real-world capitalism giving an edge to the aggressive competitor big or small. New companies are born and old companies must adapt or die.

George Mason University economist Bryan Caplan captured the phenomenon of economic illiteracy. Caplan argues that most voters elect candidates concocted on economic biases based on their feelings. They acquired hostile economic biases about free market capitalism, international free trade, and profits throughout their education.

Caplan identifies three principle biases. Anti-market capitalism bias typifies people who feel trade and profit are bad. They see one person’s gain as another person’s loss. Anti-foreign bias describes people who distrust global trade even though US prosperity increases through global interaction. Finally, make-work bias maintains that “jobs” make us prosperous rather than the goods and services they produce, the essence of true wealth creation. Thus, any labor saving technology that increases efficiency and lowers costs for better goods and services is bad because it replaces some jobs.

Far too many voters are ill-equipped to evaluate economic proposals and policies of their elected leaders. If the Republic dies, assign responsibility equally to the economically illiterate and the political charlatan.